Q: What is the rationale for the downgrade of this subordinated debt rating?

A: This is directly related to the evolving paradigm globally around the question of support when a bank fails. This is clearly not focused strictly on India. It is a move on the South and South East Asian Banks as far as we are concerned or the broader Asia Pacific Banks but that itself follows a global move, that Moody's has made globally to reassess the question or the probability that the government would come at the rescue of a bank and of all creditors in the bank incase of distress.

So, today's action affected 40 banks across 8 systems in Asia Pacific, 11 of which are in India.

Q: What are the key risks that Indian banks are facing at this point?

A: The world has changed with the global crisis. We used to assume that when a government would provide support to a failing bank, it would support it in a way that would essentially bailout all creditors and allow them to be repaid. The reason for that was that there used to be a fear that should a government impose losses on a subset of those creditors that might cause a contagion. In other words that might create a fear that would push the other creditors to run away including depositors, which they would want to avoid and they might feel compelled to provide support.

In Europe they clearly demonstrated during the global crisis that they could impose selectively losses on subordinated creditors without causing such contagion.

So, we think that going forward in the future should a crisis occur in about any country, a regulator would consider that they now have this card that they can play and increasing the probability that they might play it.